The 2022-23 state budget papers show borrowing will increase from an estimated outcome this year of $2.6 billion to $4.1 billion next year and then to $5.1 billion.

Costs associated with borrowing will increase from $47.1 million to $90 million in 2022-23 and $138.8 million the following financial year.

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Treasury states that debt servicing costs remain manageable due to the current low interest rate environment and low level of debt as a percentage of gross state product.

"To the extent that interest rates rise more rapidly than expected, over time, debt servicing costs may increase above amounts currently forecast and adversely impact key fiscal measures," it said.

Treasurer Michael Ferguson said the bulk of the borrowings reflected the size of the government's infrastructure program.

"Tasmania will continue to have the lowest net debt in the nation," he said.

"It is the lowest in absolute terms, the second lowest on a per capita basis, and among the lowest as a share of our economy.

Mr Ferguson said the net debt figure equated to $5400 per Tasmanian.

"Our net operating cash flow is positive over the budget and forward estimates, demonstrating that our revenue meets our operating costs," he said.

"We are not borrowing for operating, we are investing into infrastructure."

As was the case last year, the budget has noted a major contributing factor to the rise in net debt is due the government's continued response to COVID-19.

The budget forecasts a net operating deficit of $474.6 million in 2022-23 before a suplus over the forward estimates, starting with $19.1 million in 2023-24.

GOVERNMENT REVENUE AND EXPENDITURE:

Government revenue is expected to earn $7.8 billion, of which 65 per cent will come from government grants and 21 per cent from taxation.

The government is projected to spend $8.3 billion over 2022-23, which is more than $500 million than it will take in.

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Thirty-two per cent of the budget will be spent on health and 25 per cent on education.

The government has a planned infrastructure spend of $1.3 billion next financial year and $4.8 billion, including $2.7 billion for roads and bridges, $578.4 million on human services and housing, $490.4 million on hospitals and health, and $313.7 million on schools and education.

Treasury has predicted expenditure is expected to grow by 3.1 per cent to 2025-26 and revenue to grow by 4.1 per cent, which is above the 2021-22 budget prediction.

Total revenue for 2021-22 is estimated to be $7.8 billion, which is $617.7 million higher than the budget estimate.

Actual expenditure for 2021-22 is estimated to be $8.3 billion, which is $384.3 million than the budget estimate - largely attributable to increased employee expenses.

State taxation is estimated to accumulate $1.6 billion in 2022-23; an increase of $165 million on this year's budget.

Taxation is expected to grow by $257.4 million by 2025-26.

Employee costs represented 48 per cent of government expenditure in 2020-21.

Treasury has noted a number of state service wage agreements are up for re-negotiation this year and the budget has factored in a wage indexation of 2.5 per cent to cover salary increases.

"Any wage outcome over and above the level of indexation provided will have a negative impact on the budget outcome," it said.

Mr Ferguson said the 2.5 per cent wage rise was not a wage policy and the government would negotiate with unions in good faith.

"It's not a word of warning, it's a reality check," he said.

ECONOMIC OUTLOOK:

The state's economy is expected to grow by 2.75 per cent in 2023 which is a reduction of 3.8 per cent in 2020-21.

Growth is projected to grow to 3 per cent in 2023-24.

Employment is expected to grow by 2.25 per cent in 2021-22 which is more than double the long-term average.

Employment growth will drop to 1.25 per cent in 2022-23.

Treasury has identified COVID-19 as a budget risk, noting it is possible that more virulent or vaccine-resistant variants to the virus might remerge and require the re-introduction of some restrictions that could impact the economy.

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It says inflationary pressures also pose a risk to the economy as does ongoing supply chain disruptions.

Treasury has estimated that the consumer price index will rise to 4.75 per cent by the end of this financial year and to 5.5 per cent by the end of the next.

It said while the Reserve Bank of Australia had responded to price growth by tightening its monetary policy, there was considerable uncertainty about the path interest rates would take over the next few years and the impacts this would have on households and businesses.

"The response by consumers and businesses to interest rate changes, and the flow-on impacts across the economy, will take some time to emerge," Treasury stated in the budget papers.

"There is a risk that monetary policy responses required to curb inflationary pressures may lead to a greater than expected decline in the demand for goods and services, alongside a deterioration in consumer and business sentiment and potential impacts on property values."

GST:

A change to the GST distribution method came into affect last year with new arrangements to be implemented progressively over six years.

A no-worse-off guarantee from the federal government expires in 2026-27.

GST revenue is the largest single source of revenue for the state, representing almost 40 per cent of total revenue.

GST revenue for Tasmania has increased by $212.3 million over four years from 2021-22 to 2024-25.

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Treasury has stated the new distribution methodology is expected to reduce the state's GST in-take over the forward estimates, however, the state remains propped up by the no-worse-off guarantee.

The state is expected to receive no-worse-off guarantee payments of $247.2 million over the forward estimates.

Mr Ferguson said he expected to see the no-worse-off guarantee continue under the federal Labor government.

"All states apart from WA will be worse off past 2026," he said.

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